Singapore wants to revive SGX. South Korea, Japan may have the answer

For years, Singapore regulators have been trying to increase the attractiveness of the stock exchange.

The city-state’s economy may be bigger than Hong Kong’s, but the total value of companies listed on the Singapore Stock Exchange is about 7 times smaller.

The total market value of securities on SGX in May was $798.55 billion Singapore dollars ($590.47 billion).

Meanwhile, the Hong Kong Exchange had a market capitalization of $32.9 trillion Hong Kong dollars ($4.21 trillion) at the end of May.

Analysts who spoke to CNBC said possible solutions include engaging more with investors, and pursuing “value” programs such as those in Japan and South Korea.

Singapore’s stock market may have previously been described as “boring” and “unexciting” – but in fact, SGX’s overall performance Straits Times Index stronger than the Hong Kong benchmark Hang Seng Index.

STI has gained every year since 2021, except in 2023 when the stock market fell by 0.34%. In contrast, the HSI recorded four consecutive years of losses, including a decline of more than 10% a year between 2021 and 2023.

However, Singapore’s bourse has been plagued by thin trading volumes and more delistings than listings.

Turnover speed on SGX, a measure of market liquidity, is at 36% for all of 2023.

By way of comparison, data from the World Federation of Stock Exchanges shows that the Hong Kong Stock Exchange recorded a turnover rate of 57.35% in the same period, and 103.6% in the Japanese Stock Exchange – an indication that Japan sees total trade exceeding the total market cap. .

1. Increase the value of the program

In a May 8 note, financial services provider CGS International suggested that one way to boost Singapore’s stock market is to consider “upward value programs” in other major markets in Asia, such as Japan and South Korea.

Market regulators in Japan and South Korea have reorganized their markets, implemented new regulations, and implemented programs to improve the value of listed stocks.

While South Korea has yet to report any results from these efforts, CGS International noted some promising results from Japan.

At the end of September 2022, 50% of shares listed on Japan’s Prime market were trading below book value, a sign investors may think the company is worthless on paper.

Since the reform started in 2023, this ratio has increased to 36% on April 15.

In Singapore, Maybank Investment Banking Group estimates that 67% of SGX shares are trading below book value, although CGS International indicated stocks such as real estate investment trusts are trading below book value due to the high interest rate environment.

“We note that in Japan and Korea, the determination to improve stock market conditions is supported by high-level management of the exchange and the involvement of academics, market participants and relevant government bodies,” CGS analysts said.

The Financial Times reported in May that the SGX was examining a proposal from the Singapore Venture & Private Capital Association to increase its attractiveness.

Citing people familiar with the matter, the FT report said government agencies such as the Monetary Authority of Singapore, the Economic Development Board, and the Ministry of Trade and Industry are involved in the discussions.

MAS told CNBC that it “has received the proposals and is reviewing them,” while EDB declined to comment. MTI has not responded to CNBC’s request for comment.

2. Investor involvement

Analysts from Maybank and CGS International also said that Singapore companies should boost investor engagement, which could revive interest in the market.

CGS says companies should consider making investor relations activities — such as IR meetings, investor roadshows, and analyst coverage — a key performance indicator, saying IR events can drive interest in smaller companies.

Thilan Wickramasinghe, head of research for Singapore at Maybank Investment Banking Group highlighted that years of industry consolidation have led to underinvestment in equity research.

As such, more research is focused on large-cap, liquid stocks at the expense of smaller stocks. “Without small midcap stocks getting enough investor attention, they suffer from lower valuations and lower liquidity,” Wickramasinghe said.

This creates a negative feedback loop where illiquid stocks become unattractive for research coverage, leading to lower valuations and liquidity.

He said “increasing engagement with investors and providing better guidance to the Street is a good thing that can drive value.”

On the exchange side, some possible measures include incentives, such as tax benefits and regulated listing fees for companies that increase their value, CGS said.

3. Restructuring

However, “there is no magic bullet solution,” said Wickramasinghe, who said solutions for Japan and South Korea may not work for Singapore.

For example, Japan and South Korea are seeking to increase dividend payments, but Singapore has become the main dividend-led market in the region and investors’ share of this yield has been well provided for, he said.

For him, the company should continue to invest to streamline its capital structure and focus on generating higher returns, which the market tends to reward.

Wickramasinghe pointed to companies listed in Singapore for example Sembcorp Industries and Keppel Corpwho has restructured the capital structure in the past few years and outperformed the market “massively.”

Of course, the call to revive Singapore’s stock market is not new.

In 2015, a group of remisiers in Singapore signed a letter of appeal to the government asking for important measures to restore confidence in Singapore stocks.

In February this year, the Society of Remisiers again asked the financial authorities to do more to revive interest in the Singapore stock market.

The Singapore Parliament debated the issue, and Finance Minister Lawrence Wong highlighted that “the situation remains challenging for the Singapore equity market” adding that due to “longer” interest rates, strong growth companies chose to remain private, and those listed preferred the market. like the US

Wong, who is also now prime minister, said that while the government will continue to encourage Singapore-incubated companies to list in Singapore, “the final listing decision will be made by the company.”